Nestlé, the world’s largest food company, rocked food circles in late October with the news that it was leaving the industry’s most powerful lobbying group in Washington, the Grocery Manufacturers Association, amid disagreements about how to respond to changing consumer tastes.

The departure of a conglomerate that owns thousands of brands — from Hot Pockets to Deer Park water — was the most visible sign yet that the food industry’s reign in Washington is faltering as some companies scramble to adapt to rapidly evolving consumer demands while others are slower to embrace the trends. Long the attack group for large companies like Kraft and General Mills on legislative and regulatory issues, GMA now has members like Nestlé opposing some of its positions.

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The splintering of the food lobby has been driven in part by an upheaval at the grocery store, where iconic brands are stagnating as millennials and moms seek healthier and more transparent products. But complacency and a lack of leadership at GMA are also to blame, according to interviews with more than a dozen current and former member companies, former staff and other industry leaders in Washington.

In the past year, the trickle of news about member companies deciding to leave GMA appear to be not one-offs, but part of a burgeoning trend.

Six months before Nestlé's decision, Campbell Soup Co., maker of Goldfish crackers and V8 juices, announced it was leaving GMA, in part because the association fought bitterly against mandatory labeling for foods with genetically modified ingredients, or GMOs. In what may have been a contrarian view, Campbell decided to stop fighting and instead embrace GMO labeling early last year, believing that consumers want more information about what's in their food and where it comes from — not less. Both Nestlé and Campbell are leaving the group at the end of the year.

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Other major food companies are also eyeing the door: Dean Foods, the largest dairy company in the country, has quietly decided to leave the association. Several others, including Mars — one of the largest private food companies, which owns swaths of globally recognized brands, from candy to pet food — are considering it.

"Some of these companies are realizing that being more progressive is a good place to be, from a marketing perspective,” said Melissa Musiker, vice president and director of food and nutrition policy at APCO Worldwide, a public relations and consultancy firm. “They get kudos for it."

"In the past, there was protection in numbers — you kind of hunkered down, and to the extent that these companies stuck together, they could win," said Musiker, who worked at GMA as a director on science and nutrition policy from 2009 to 2011.

Nestlé and Mars declined to comment for this story. Campbell Soup Co. also declined to comment on why it publicly split with GMA last summer. A spokesperson for Dean Foods told POLITICO the company was leaving GMA “so we can prioritize and allocate our limited time and resources elsewhere,” and declined to comment further. Some in Washington speculate that Dean Foods left for fiscal reasons amid well-documented financial troubles, and not over an ideological division with GMA.

A permanent shift in consumer tastes

The food industry’s disarray in Washington has been simmering for a long time.

Companies are increasingly under pressure to find growth in a market in which more and more consumers are seeking healthier fare, whether they’re buying organic baby food, cereal without artificial colors or meats raised without antibiotics. These changing tastes are no longer considered just a niche market driven by high-income consumers. The top 20 U.S. food and beverage companies lost roughly $18 billion in market share between 2011 and 2017, according to a recent analysis by Credit Suisse.

As legacy brands lag, food companies have two options: Change to compete or buy up the new brands that are already growing rapidly. Many of the cutting-edge brands have become part of conglomerates over the past decade, exacerbating a culture clash in some cases between the old and the new: Naked Juice is now owned by PepsiCo, Honest Tea belongs to Coca-Cola, Larabar is under General Mills, Kashi is owned by Kellogg’s, and Nestlé just bought Blue Bottle, a cold brew coffee company with deep California roots.

Naked Juice is now owned by PepsiCo, Honest Tea (pictured here) belongs to Coca-Cola, Larabar is under General Mills, Kashi is owned by Kellogg’s, and Nestle just bought Blue Bottle, a cold brew coffee company with deep California roots. | Jason Kempin/Getty Images for Honest Tea

Today, all of the largest food companies own brands like Betty Crocker alongside Annie’s organic macaroni and cheese, which may have competing priorities and values.

Roger Lowe, a spokesman for GMA, said the association is adapting to these changes. “It is not so much an industry divided as an industry that has been tremendously disrupted and is evolving at an unprecedented pace,” he said. “There’s no question that companies — and GMA — are all different today than they were five years ago or three years ago — and that we all will continue to evolve and change at a faster pace.”

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Unity frayed gradually, but cracks in the industry coalition really began to emerge during the Obama administration, when the nutrition agenda ran contrary to the decades-long status quo. First lady Michelle Obama made combating childhood obesity her signature issue, putting an incredible amount of pressure on the industry to change.

When the Food and Drug Administration unveiled its update for the Nutrition Facts label in 2014 with a new requirement to list “added sugars” for the first time, plenty of food companies were furious, arguing that it wasn’t based in science and would confuse consumers. But others, including Nestlé and Mars, accepted the idea, concluding it was what consumers wanted or would be good for their business, or both.

GMA’s members were so divided over the policy that the association submitted split comments to the regulator, with minority and majority opinions that argued the pros and cons of added sugars labeling, a public division that no one could recall happening in the past.

Today, food companies are divided over when the Nutrition Facts label changes should take effect. The Trump administration announced earlier this year it would delay the compliance deadline 18 months after GMA and other leading food companies asked for more time. The new labels are scheduled to start becoming mandatory in January 2020. Earlier this month, however, Coca-Cola broke from GMA and told the FDA the labels should roll out sooner because consumers want more information.

Lowe of GMA pointed out that the food industry is united on other issues, including pushing for the Food Safety Modernization Act, a massive update to food safety law that Congress passed in 2010. There also is broad, ongoing work to reduce food waste, including commitments to make expiration dates less confusing for consumers.

Still, with each episode of discord, both internally and publicly, it becomes harder for GMA to convince its members to pay fees to belong to a trade group that’s rife with division and, at times, fights against issues they either don't want fought or don’t want to be associated with.

“Companies that get it have said, ‘Why are we paying GMA more than $1 million a year to lobby for things that our brands don’t support?’” said Jeff Nedelman, founder of the public relations firm Strategic Communications, which works with health and wellness brands, and a VP of communications at GMA during the 1980s and '90s.

“To me, it looks like GMA is the dinosaur just waiting to die,” Nedelman added.

The association, which says it has more than 250 members, bases its membership fees on U.S. sales volume, so the larger companies pay the most. Nestlé was one of the top dues-paying members, according to people familiar with GMA’s structure, which means the Swiss-based company’s exit could be a tough blow to the association’s operating budget.

GMA loses its grip on swaying policy

Last month, Campbell made waves again by joining the upstart Plant Based Foods Association, a group that represents a lot of alternative meat makers and other fast-growing companies. PBFA membership dues for large companies like Campbell are only $25,000, much less than the more than $317,000 Campbell has been paying GMA, according to financial disclosures.

"At times, we find ourselves with philosophical differences with many of our peers in the food industry on important issues … and our trade association," Denise Morrison, CEO of Campbell Soup Co., said at the company’s Institutional Investor Day last summer, around the time the company announced it would leave GMA at the end of the year.

“More than one food industry lobbyist has told me that they spend more time lobbying their industry association than they do Capitol Hill,” said Scott Faber, vice president of government affairs at the Environmental Working Group — a position he held at GMA from 2007 to 2012. “It begs the question about whether associations like GMA are obsolete.”

Lowe said the association has picked up new members in the past year, but he did not disclose which companies have joined. The membership used to be listed on GMA’s website, but it was taken down after a nasty battle over GMO labeling in California, during which a handful of GMA member companies were boycotted for spending millions to defeat a ballot initiative there.

Frustration among member companies is not limited to policy disagreements. GMA has kept up its spending even as its members are cutting costs and laying off workers to meet their quarterly targets. Pam Bailey, president and CEO of GMA, earned more than $2 million in 2016. But more fundamentally, members fault the association for not adapting more quickly to the changing consumer environment or the disruption in the marketplace.

“Senior management is making fortunes in salaries,” said Nedelman, a former GMA executive who still consults for the industry. “Nestlé and other companies are looking at that and saying, ‘What in the hell is going on? Why are we paying these people all this money, and getting nothing?’”

Labeling battle drives a wedge

A protracted war over GMO labeling lay bare that the food lobbying group needed the help of other industries to get its agenda through Congress.

Since 2012, GMA had spent tens of millions fighting state laws requiring food containing genetically engineered ingredients to be labeled. The group prevailed at first, defeating ballot initiatives in California and Washington. But it lost in Connecticut and Maine. In May 2014, Vermont became the first state to approve a mandatory labeling law with a firm effective date.

Some congressional offices reported that they got more calls supporting GMO labeling than any other single policy issue. | Nicholas Kamm/Getty Images

The food industry swarmed Capitol Hill offices to argue that a patchwork of state labeling laws would be disastrous for companies’ bottom lines. At the same time, some congressional offices reported that they received more calls supporting GMO labeling than any other single policy issue.

GMA since 2012 has spent about $37 million lobbying Congress and federal agencies on an array of industry issues, according to the Center for Responsive Politics. The GMO labeling fight was its top priority during the majority of those years. But when it came time to close the deal, the group sought the help of the agribusiness and biotechnology sector, which was worried that labeling would send a message to consumers that the genetically engineered corn, soybeans and sugar found in about 75 percent of processed foods is unsafe to eat, despite the scientific consensus on safety.

Last summer, Congress passed legislation that preempted state laws and made GMO disclosure mandatory, though food companies have flexibility in how to present the information, whether on packaging or digitally via smartphone.

GMA and the agriculture and biotech groups all say that the final bill was a clear win for their industries.

“You would’ve had a patchwork of different state laws,” Lowe of GMA said. “Stopping that and establishing a uniform standard was the No. 1 priority of the food and beverage industry.”

Still, some involved in GMA’s yearslong campaign against GMO labeling debate whether it all was worth it. The costs poured into lobbying at the state and federal level added up. And consumers were left with the impression that the industry was against transparency.

“We missed an inflection point with consumers,” said one longtime industry consultant. “When consumers had access to the internet, we denied them access to information. What the hell?”

GMA says it has opened up a new chapter in recent years in which it is committed to transparency and building consumer trust, according to Lowe. He pointed to the development of SmartLabel, an online database that GMA rolled out last year with the Food Marketing Institute, which represents grocery retailers. As of Friday, SmartLabel had information on more than 16,000 products made by 40 companies, such as Nestlé, Hershey’s, General Mills, Kellogg's, ConAgra and Kraft Heinz. The goal is to have 34,000 products enrolled by the end of the year.

The association also recently decided to formally urge the Department of Agriculture to adopt a broad definition of GMOs as it comes up with labeling regulations to ensure that products containing ingredients like high fructose corn syrup or soybean oil would be labeled and not exempted.

Internal turbulence

Undermining this narrative, however, is the fact that GMA last year was hit with an $18 million fine by Washington state, which said that the association intentionally hid the source of its donations to the campaign opposing the 2013 ballot initiative on GMO labeling. The fine was a record penalty for violating state campaign finance laws.

GMA raised more than $14 million from Pepsi, Nestlé, Coke, General Mills, ConAgra, Campbell and others, then contributed $11 million of that to the campaign in Washington state in an effort to shield individual companies from being associated with the effort.

The court in its decision described GMA President Bailey’s testimony as “combative at times,” noting that she often wouldn’t answer questions directly and instead asked questions of her own. The court offered the same criticism of Louis Finkel, who then served as the trade association’s executive vice president of government affairs. Finkel left in 2014 to be a lobbyist for the oil industry.

The association has denied any wrongdoing and has accused Washington state Attorney General Bob Ferguson of going after the industry to further his political career. GMA has appealed the decision and is waiting for the case to be heard.

After all the drama over the past decade, it remains to be seen whether the new wave of the food industry will end up gravitating toward GMA. Upstart brands that are growing rapidly don’t seem to be flocking to the association. Most of them are avoiding Washington, D.C., and trying to stay out of the policy fray as they focus on maximizing growth.

“I don’t know a single challenger brand that’s said ‘Hey, I need to join GMA,’” said John Foraker, the founder and former CEO of Annie’s, a natural macaroni and cheese and snack company that General Mills bought for $820 million in 2014.Foraker had a window into the changing culture in the food industry, in part because he stayed on at Annie’s after the acquisition. He recently left to launch a cold-pressed baby food company with actress Jennifer Garner and others.

As more millennials become parents, food companies will have to adapt and change even more, Foraker said, as the majority of shoppers will be looking for brands and companies and products aligned with their values.

“Just wait. The next decade is going to be insane,” he said. “Nestlé and GMA — it’s just the chop in the water. It’s going to get worse.”